STOCKS ARE BUILDING ON FRIDAY'S UPSIDE REVERSAL FROM 200-DAY AVERAGE -- THE NEXT TEST WILL COME AT 50-DAY AVERAGES -- SMALL AND MIDSIZE STOCK INDEXES ALSO BOUNCE OFF 200-DAY LINES
MARKETS MOVE FURTHER AWAY FROM 200-DAY LINE... Stocks continue to build on the upside reversal that took place on Friday from 200-day moving averages. The daily bars in Chart 1 show the S&P 500 gaining enough ground today to climb back over its 100-day line (green line). The next test of the rally will come near the 50-day average (blue line) and last Wednesday's intra-day high at 2727. The fact that so many other stock indexes found support at their 200-day lines is also a positive sign. That includes small and midsize stocks. Chart 2 shows the S&P 400 Mid Cap Index bouncing off its 200-day line. Chart 3 shows the S&P 600 Small Cap Index doing the same. In fact, all major stock indexes remain above their 200-day lines. That includes foreign stock indexes in developed and emerging markets. If this is just a normal 10% correction, that's just where new buying should start to emerge. The same is true of market sector ETFs. Eight of the eleven stock sector ETFs remain above their 200-day lines. The three that haven't are staples, utilities, and REITs which have been hurt by rising bond yields. The fact that they're also defensive in nature shows that investors haven't yet gravitated to them for safety. A weaker dollar is boosting commodities and stocks tied to them.
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Chart 1
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Chart 2
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Chart 3
FOUR ETF LEADERS ... It's also encouraging to see that the market sectors leading the recovery are tied to a stronger economy. Chart 4 shows the Consumer Discretionary SPDR (XLY) being the first to climb back over its 50-day average (blue). The three next charts show Financials (XLY), Industrials (XLI), and Technology (XLK) clearing their 100-day lines.
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Chart 4
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Chart 5
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Chart 6
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Chart 7
FOUR OF THE DAY'S STRONGEST STOCKS... Two of the day's strongest stocks are Boeing (BA) and Cisco (CSCO). Charts 8 and 9 show both still trading above their 50-day averages. Chart 10 shows American Express (AXP) rebounding sharply off its 200-day average and close to clearing its 100-day line. Chart 11 shows Apple (AAPL) trading back above its 200-day average.
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Chart 8
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Chart 9
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Chart 10
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Chart 11
VIX INDEX CONTINUES TO RETREAT ... The 30-minute price bars in Chart 12 shows the CBOE Volatility (VIX) Index falling another 14% today to 25. The VIX failed two attempts to stay over 40 last week which helped stabilize the market. It's now near the lower end of its new trading range between 40 and 22. A lower VIX reading is a positive sign for the market.
